The Upward Issue of Agricultural Products Based on Farmer Cooperatives in the Context of Internet

Hong YANG1*, Ju HE

1. Economics and Management School of Yangtze University, Hubei Rural Development Research Center, Jingzhou 434023, China; 2. Jingzhou Technician College, Jingzhou 434023, China

Abstract In recent years, the development of rural e-commerce has been rapid but not balanced, and the upward scale of agricultural products is much smaller than the downward scale of industrial products. In the upward process of agricultural products, there are different models of e-commerce with farmers as the main body or cooperatives as the main body. Comparatively speaking, the difficulties in developing e-commerce for agricultural products with farmers as the main body are more prominent, while the development of e-commerce in agricultural products with cooperatives as the main body has more significant advantages. At present, there are still urgent problems to be solved, such as insufficient cold chain logistics facilities, insufficient scale and strength of cooperatives, and lack of systematic planning of local government’s support policies for agricultural products. However, generally speaking, the upward trend for agricultural products based on cooperatives will be the mainstream of the development of agricultural electronic commerce in the future.

Key words E-commerce of agricultural products, Cooperatives, Upward of agricultural products

1 Introduction

In No.1 document of central government of 2020, it clearly set forth "launching the construction project of agricultural products storage, fresh-keeping and cold-chain logistics facilities", "effectively developing rural markets, expanding e-commerce coverage in rural areas", "promoting two-way circulation of agricultural products into cities and industrial products to the rural areas". This is the seventh consecutive year that related concepts have appeared in the No.1 document of the central government following the "strengthening of the construction of e-commerce platform for agricultural products" in 2014. In this context, it is the continuous and rapid development of rural e-commerce in recent years. In 2014, China’s rural online retail sales amounted to 180 billion yuan, which would increase to 1.37 trillion yuan in 2018, an increase of nearly 7 times in just 4 years. However, it should be noted that, on the one hand, compared with the average annual growth rate of nearly 100% in previous years, the growth rate of rural e-commerce in 2017 and 2018 actually slowed down, to 39.1% and 30.4% respectively[1]. This shows that after the high speed development at the early stage, the rural e-commerce has begun to enter a relatively stable development period, and the external constraints have started to appear. On the other hand, in the process of rapid development of rural e-commerce, its business structure is also obviously unbalanced. The scale of "downward of industrial products" in rural areas is much larger than the scale of "upward of agricultural products". The online sales of agricultural products have grown rapidly, but the overall scale is still relatively small compared to all physical goods on the entire network. In 2018, the online retail sales of agricultural products in China were 230.5 billion yuan, accounting for 16.8% of the whole country’s rural online retail sales, but only 3.3% of the whole country’s online retail sales of physical goods. This indicates that the upward road for agricultural products is long and difficult.

2 Main modes and difficulties faced by farmers in selling agricultural products by e-commerce

By June 2019, the number of Internet users in China reached 855 million, of which rural Internet users accounted for 26.3%, which was 225 million. With the rapid development of the mobile Internet, the proportion of mobile Internet users in the overall Internet users has reached 99.1%[2]. These were the data at the individual level. From the perspective of the family, as long as one family member is connected to the Internet, the family can be considered as an Internet-based family. At present, the vast majority of farmer households have Internet access conditions, which has laid the necessary foundation for farmers to develop agricultural e-commerce. There are two main modes for farmers to develop e-commerce for agricultural products based on their families: one is to rely on the e-commerce platform to operate independently, and the other is to rely on social software to operate independently.

2.1 Difficulties faced by farmers that operate independently relying on e-commerce platformFarmers who rely on e-commerce platforms to independently operate their businesses mainly set up online stores on some third-party e-commerce platforms such as Taobao to sell their special agricultural products. Such operation mode appears in some areas with better infrastructure conditions, more complete logistics facilities, and more prominent features or advantages of agricultural products. If they operate well, they can not only get richer profits than traditional sales methods, but also promote the sales of agricultural products by other farmers in the surrounding areas, build a brand and enjoy a certain distribution income. However, in this model, most of the farmers are new to the Internet, want to open a store on a third-party e-commerce platform, and they will face a completely different competition situation in the traditional sales channels. There are many similar businesses on the e-commerce platform. The homogeneity of agricultural products and the difficulty in perceiving the quality will make the competition extremely fierce. Considering the costs, farmers generally do not hire professional companies to operate when operating online stores. This requires farmers to complete online store decoration, photo shooting and landscaping, promotion and sales guidance,etc. The operation ability, comprehensive quality and funding requirements are relatively high. To maintain a healthy development, the pressure is very high.

2.2 Difficulties faced by farmers that operate independently relying on social softwareRelying on Weibo, WeChat, Douyin, Kuaishou and other social software, some farmers can easily introduce their agricultural products to everyone or show their production process, and achieve sales through direct interaction with consumers. The entry threshold for this mode is lower than the previous one, and the requirements for capital and technology are not high, and it can interact more flexibly with consumers and increase customer stickiness. However, under this mode, it is not easy to really achieve good sales effects. The main difficulties include, in addition to those of previous mode, this mode requires high-quality agricultural products and better logistics conditions, and it also requires farmers to have extensive social relationships and master online communication skills. Nevertheless, the "friend circle" of most farmers is very narrow and there are fewer social relationships outside the industry. As a result, even with these social software, the sales scale is limited.

3 Main modes and advantages of e-commerce relying on farmer cooperatives

According to statistics, by the end of 2018, there were 2.173 million registered farmer cooperatives in the whole country, with more than 100 million farmer households participating in the cooperatives, accounting for 49.1% of the total number of farmer households in the whole country. More than half of cooperatives have used the Internet to sell production materials and agricultural products[3].

3.1 Main modes of e-commerce undertaken by cooperatives

3.1.1Cooperatives supply and sell agricultural products for online stores. The appearance of this mode is mainly due to the excellent product quality of some cooperatives and also a certain scale. They want to open up online sales channels, but the leaders of the cooperatives are not familiar with the operation of e-commerce or do not have independent operation ability. Through cooperating with third-party online sellers and supply products for them, cooperatives can use third-party cooperative professional network sales forces to open up the market. Although in most cases, this mode is OEM production, it is difficult to spread the cooperative’s own brand, and the space for profit is relatively small, but it is also a pragmatic upward path for agricultural products under the constraints of realistic conditions. In this model, the cooperatives do not have their own online store, but because of the professional sales capabilities of third-party online stores, they can sharply capture market demand, and well guide the cooperative to carry out targeted production and more accurately connect the market, so as to enable cooperatives to obtain higher returns than traditional channels. Moreover, this mode has also laid the foundation for the later expansion of cooperatives to gradually use the Internet to carry out sales work.

3.1.2Cooperatives sell agricultural products through opening up online stores. Such cooperatives are generally strong and have formed an influential agricultural product brand, want to increase their level and profitability in the industry chain by opening stores on third-party e-commerce platforms. The leaders of cooperatives often have a broader horizon and are interested in various kinds of new things. In this mode, the cooperative owns an online store on a third-party platform. The specific operation can be based on its actual situation, or it can choose to build its own sales team, or choose to entrust other professional service providers to operate, but the ownership belongs to the cooperative. In addition to opening online stores on third-party platforms, cooperatives can also use a variety of social software such as WeChat public account, Weibo, Douyin to undertake online marketing. Survey statistics show that among cooperatives that have used the Internet for sales, the proportion of online sales in third-party e-commerce platforms reached 77.7%, followed by the use of various social software channels, accounting for 60.1%, and more than 30% of cooperatives carry out agricultural product upward work through two or more online sales channels[4].

3.1.3The cooperative cooperates with the e-commerce platform to realize direct farming at the base. In recent years, large e-commerce platforms such as Ali, JD.com, and Pinduoduo (Buy Together) have begun to focus their efforts on the rural market. The desire of these platforms is no longer satisfied with merely providing a trading platform for agricultural products, but to establish a direct production and marketing relationship with the source of production. E-commerce direct farming bases have higher requirements for the production scale, degree of standardization, and quality stability of agricultural products, but these requirements cannot be met by ordinary small farmers. Therefore, it is necessary for cooperatives or unions to better organize farmers to achieve "several unifications" such as unified technical training, unified agricultural supply, unified pest control, unified mechanized operations, unified management, and unified sales. Through cooperatives, the scattered agricultural productivity is relatively concentrated, forming a "big production" to more effectively connect with the "big market" of the e-commerce platform. This mode is also one of the most representative and vigorously developing agricultural e-commerce mode.

3.2 Comparative advantages of e-commerce relying on farmer cooperativesCompared with farmers’ independent operation of e-commerce, farmer cooperatives can better gather people, collect goods, and collect wisdom, and have certain comparative advantages in terms of production scale, intensive processing, integration of three industries, and reduction of transaction costs:

(i) Large production scale reduces transaction costs for connecting with large markets. China has a vast territory and a large population. The production of agricultural products with households as the main unit of production is extremely scattered. In order to connect to the consumer market of 1.4 billion people, the transaction costs are extremely high. Although farmer cooperatives are still at an early stage of development, and most of them are not large enough or strong enough, their production scale still has obvious comparative advantages compared with farmers’ families, which is more conducive to achieving a moderate scale of operation. According to data from a survey of typical cooperatives by the Farmers Daily Agency’s Rural Development Research Center in 2018, of the 555 valid samples surveyed, the average number of farmers (investment, equity) in the cooperative was about 263, and the number of farmers served by cooperative was about 2 618 households. By the end of 2018, more than 100 million farmers had participated in farmer cooperatives in China, accounting for 49.1% of the total number of farmers in the whole country. Therefore, relying on cooperatives to connect the market can effectively reduce transaction costs.

(ii) Stronger capital strength is convenient for deep processing and brand building. For agricultural products to succeed in the upward path through e-commerce, it is inseparable from intensive processing and brand effects. The introduction of processing technologies, purchase of processing equipment, packaging planning of agricultural products, and brand marketing all require strong financial strength and production scale as support. With the continuous development and expansion of local cooperatives, their business scope has also expanded and gradually developed towards the integration of production, sales and marketing. The sampling survey mentioned above shows that the operating income of cooperatives in 2017 were approximately 23 270 700 yuan. Among the 682 valid samples participated in the survey, 90.8% of the cooperatives implemented standardized production and services. 63.9% of the cooperatives have their own brands, of which 22.0% have two or more brands.

(iii) The personnel quality is high, and they can make better use of the Internet for sales. Farmer professional cooperatives are grassroots organizations that currently exist in rural areas. As leaders of cooperatives, they generally have a higher education level than ordinary farmers, and are more willing to contact and learn new knowledge. In recent years, the directors of various cooperatives and many members have received training for new types of professional farmers. In addition to production technology, they have also acquired more e-commerce and marketing knowledge. This will help cooperatives make better use of the Internet to carry out sales and increase the income of members.

3.3 Problems to be solved in the process of e-commerce for farmer cooperatives

3.3.1The shortage of cold chain logistics facilities restricts the scale of e-commerce development of cooperatives. Compared with industrial products, agricultural products have storage and transportation problems such as fresh activity, perishability, and short fresh-keeping period. Therefore, most agricultural products have more stringent requirements for packaging, storage, and fresh-keeping technologies during transportation. However, from the perspective of the current development of cold chain logistics in China, the main players of cold chain logistics are diversified, small in scale, and unevenly distributed[4]. Especially in some remote areas where the economy is underdeveloped, most agricultural products can only be transported through the traditional room temperature logistics mode, which does not meet the standard, unified, high-standard logistics and distribution technologies such as cold storage storage and cold chain logistics required by e-commerce platforms device. These hinders the cooperation between the cooperative and the e-commerce platform, and it is difficult to expand the scale of the cooperative’s agricultural products through e-commerce.

3.3.2The scale and strength of cooperatives need to be further expanded and strengthened. To open up the upward path of agricultural electronic commerce, we must first solve the problems of agricultural product standardization, branding, and quality control. Judging from the current actual development of cooperatives in various places, most of the cooperatives are still in a small and weak stage of development. It is difficult to use the Internet to independently develop agricultural products. Therefore, it is necessary for these cooperatives to take the initiative to transform from "household cooperation" to larger-scale and higher-level "cooperative-cooperative unions", from "individual struggle" of cooperatives to "cluster development", to integrate resources and interact and collaborate with each other. It is possible to form "inter-industry-type, same-industry-type, and homogeneous-type" associations through the exchange of presence or absence or strong alliances, so as to effectively improve the scale and standardization of the associations. In terms of agricultural product processing and sales, it can also form alliances with family farms and some powerful agricultural enterprises, and eventually form a new type of circulation led by cooperatives (cooperative associations), which is efficient, fair and has a more reasonable income distribution mechanism.

3.3.3Relevant government departments lack systematic support for network connection. The development of rural e-commerce has a strong cluster demonstration effect. Therefore, relevant government departments should stand at the height of county-wide development and comprehensively and systematically support the network connection of cooperatives. it is recommended to introduce relevant incentive policies, and make a comprehensive plan. (i) It is recommended to strengthen the construction of rural information service centers, and create the basic network conditions for agricultural products to go up; (ii) enhance the cooperative members’ awareness and understanding of e-commerce through various means such as publicity, training, and communication, and improve their information quality and skills, create a good application environment for e-commerce; (iii) provide strong support for cooperatives to connect with e-commerce platforms, such as Taobao, Jingdong. and Pinduoduo, and encourage cooperatives to use WeChat public accounts, mini-programs and various live broadcast platforms to carry out online marketing. In addition, it is recommended to support qualified cooperatives to build their own e-commerce platforms and expand sales channels.

4 Prospects

Since receiving the attention of the No.1 document of the central government in 2014, agricultural e-commerce has ushered in a rapid development in these seven years. Capitals from all walks of life are rushing to enter, and governments around the world have also regarded it as one of the important starting points for solving the three rural issues. After experiencing the initial barbaric growth stage, the development of agricultural electronic commerce has become clearer: the effective ascending of agricultural products cannot be achieved without highly standardized agricultural products and a high-level professional operation team. It is difficult for farmers to go a long walk. It is feasible to rely on professional cooperatives or agricultural enterprises to establish close links with e-commerce platforms. Since cooperatives are farmers’ own cooperative organizations, their interests are internalized and it is easier to get farmers’ support and cooperation. In the future, in the various agricultural product e-commerce upward chains, farmers cooperatives will be an important link.